Tuesday, April 19, 2011

Post Tax Day Review

Taxes, as expected for this time of year, have been much talked about in the past few weeks. With recent reports that nearly half of US households pay no income tax at all, I thought it would be a good time to review the subject touching on various levels of taxation and the general feel of the population.

Recently we've learned that large corporations, some turning enormous profits in the US pay NO income tax whatsoever. Giants like GE and Whirlpool make quite large profits manufacturing and selling "green" appliances. Simply by making these the companies get a tax credit that allows them to offset taxes on non-green products. These credits then become an asset of the corporation, thus making them more valuable to their shareholders. Making and selling green appliances is a profitable line of business by itself, do we really need additional profits to be generated by providing government subsidies through the tax code?

Now, let's take a look at our fiscal problems and how some would like to solve them. We are currently running a 1.6 trillion dollar a year deficit in this country. Some say this is because of "tax breaks for the wealthy." The same people saying this are the ones who say that we should have the above mentioned tax credits for conducting a profitable business because it suits their political agenda. Now some "facts" as they are currently accepted, straight from the Congressional Budget Office. First, during the debate over extending the Bush era tax rates last December, the CBO budgeted the "cost" of those tax rates at $70 billion per year. Yes, I know, the looters need that $70 billion. Why stop there? Why not tax 100% of income over $250,000? No one really needs more money than that each year right? (If you momentarily thought that this might be a good idea, then you're a looter.) The problem is, that would only fund the government for a little more than a third of 1 year. And guess what? No one is going to work to earn more than that after having their earnings confiscated by the government. Consider this question as well. If tax cuts cost money, why do revenues increase at a pace greater than GDP growth after a reduction in the top marginal rates?

Not that popular opinion matters much to me, but it is interesting to see what people think. Gallup introduced information from a series of polls taken between 2005 and 2011. At all times during these polls the current tax rates have been in place. If you're interested, go take a look at the entire poll. First the basic info 45% of Americans pay zero income tax. The top line of the poll says that 43% think they pay a "just right" amount of taxes. Hey, if I paid no taxes I'd think that was Just right too! Even more interesting was the perception of people in the lower and low middle income brackets, most of whom pay no federal income taxes at all. About 80% of these combined groups felt that what they paid was either fair or too much. Of course, these same people said that upper income individuals didn't pay enough. Looters.